Depreciation MethodsWendy's boss wants to use straight-line depreciation for the new expansion project because he said it will givehigher net income in earlier years and give him a larger bonus. The project will last 4 years and requires$1,780,000 of equipment. The company could use either straight-line or the 3-year MACRS accelerated method.Under straight-line depreciation, the cost of the equipment would be depreciated evenly over its 4-year life. (Ignorethe half-year convention for the straight-line method.) The applicable MACRS depreciation rates are 33.33%,44.45%, 14.81%, and 7.41%. The project cost of capital is 9%, and its tax rate is 25%.a. What would the depreciation expense be each year under each method? Enter your answers as positive values.Do not round intermediate calculations. Round your answers to the nearest dollar.Year12Scenario 1(Straight Line)3$$$$$$4$$b. Which depreciation method would produce the higher NPV, and how much higher would it be? Do not roundintermediate calculations. Round your answer to the nearest cent.The NPV under [-Select-will be higher by $Scenario 2(MACRS)

A depreciable asset is a tangible or intangible asset owned by a business that has a finite useful…

Answered: Wendy's boss wants to use straight-line…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Pear Orchards is evaluating a new project that will require equipment of $249,000. The equipment will be depreciated on a 5-year MACRS schedule. The annual depreciation percentages are 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, and 11.52 percent, respectively. The company plans to shut down the project after 4 years. At that time, the equipment could be sold for $67,100. However, the company plans to keep the equipment for a different project in another state. The tax rate is 21 percent. What aftertax salvage value should the company use when evaluating the current project?.
Fun Land is considering adding a miniature golf course to its facility. The course would cost $75000, would be depreciated on a straight line basis over its 4-year life, and would have a zero salvage value. The estimated income from the golfing fees would be $40000 a year with $12000 of that amount being variable cost. The fixed cost would be $6000. In addition, the firm anticipates an additional $15000 in revenue from its existing facilities if the course is added. The project will require $7000 of net working capital, which is recoverable at the end of the project. What is the net present value of this project at a discount rate of 12 percent and a tax rate of 35 percent? $19,812.09 $20,360.22 $15,429.48 $13,199.40 $24,738.41
Delia Landscaping is considering a new 4-year project. The necessary fixed assets will cost $162, 000 and be depreciated on a 3-year MACRS and have no salvage value. The MACRS percentages each year are 33.33 percent, 44.45 percent, 14.81 percent, and 7.41 percent, respectively. The project will have annual sales of $102,000, variable costs of $27, 500, and fixed costs of $12,100. The project will also require net working capital of $2,700 that will be returned at the end of the project. The company has a tax rate of 21 percent and the project's required return is 12 percent. What is the net present value of this project?
Ben is looking at a new computer system with an installed cost of $560000. This cost will be depreciated straight - line to zero over the project's five year life, at the end of which the computer system can be scrapped for $85000. The computer system will save the company $165000 per year in pretax operatiing costs, and the system requires an initial investment in net working capital of $ 29000. If the tax rate is 34 percent and the discount rate is 10 percent, what is the NPV of this project?
Delia Landscaping is considering a new 4-year project. The necessary fixed assets will cost $157,000 and be depreciated on a 3-year MACRS and have no salvage value. The MACRS percentages each year are 33.33 percent, 44 45 percent, 14 81 percent, and 7.41 percent, respectively. The project will have annual sales of $98,000, variable costs of $27,400, and fixed costs of $12,000. The project will also require net working capital of $2,600 that will be returned at the end of the project. The company has a tax rate of 21 percent and the project's required return is 10 percent. What is the net present value of this project? Multiple Choice $3112 $3.395 $16.360 56718 $4.645
Your firm needs a machine which costs $120,000, and requires $33,000 in maintenance for each year of its 5 year life. After 5 years, this machine will be replaced. The machine falls into the MACRS 5-year class life category. Assume a tax rate of 35 percent and a discount rate of 15 percent. What is the depreciation tax shield for this project in year 5?
Fluid Dynamics Company owns a pump that it is contemplating replacing. The old pump has annual operating and maintenance costs of $8,000/year: it can be kept for 4 years more and will have a zero salvage value at that time. The old pump can be traded in on a new pump. The trade-in value is $4,000. The new pump will cost $18,000 and have a value of $9,000 in 4 years and will have annual operating and maintenance costs of$4,500/ year. Using a MARR of 10%, evaluate the investment alternative based upon the present worth method and a planning horizon of 4 years. Solve,a. Use the cash flow approach. b. Use the opportunity cost approach.
The Oviedo Company is considering the purchase of a new machine to replace an obsolete one. The machine being used for the operation has a book value and a market value of zero. However, the machine is in good working order and will last at least another 10 years. The proposed replacement machine will perform the operation so much more efficiently that Oviedo's engineers estimate that it will produce after-tax cash flows (labor savings) of $6,000 per year. The after-tax cost of the new machine is $30,000, and its economic life is estimated to be 10 years. It has zero salvage value. The firm's WACC is 10%, and its marginal tax rate is 25%. Should Oviedo buy the new machine? Oviedo (should or Should not) purchase the new machine.
Delia Landscaping is considering a new 4-year project. The necessary fixed assets will cost $189,000 and be depreciated on a 3-year MACRS and have no salvage value. The MACRS percentages each year are 33.33 percent, 44.45 percent, 14.81 percent, and 7.41 percent, respectively. The project will have annual sales of $126,000, variable costs of $33,700, and fixed costs of $12,700. The project will also require net working capital of $3,300 that will be returned at the end of the project. The company has a tax rate of 21 percent and the project's required return is 9 percent. What is the net present value of this project? ASAP, PLEASE

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